Bezden Pty Ltd v A Castellano Nominees Pty Ltd
[2003] VSC 70
•17 March 2003
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
PRACTICE COURT
No. 4071 of 2003
| BEZDEN PTY LTD (ACN 056 909 267) | Plaintiff |
| v | |
| A CASTELLANO NOMINEES PTY LTD (ACN 004 939 253) | Defendant |
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JUDGE: | Balmford J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 24 February 2003 | |
DATE OF JUDGMENT: | 17 March 2003 | |
CASE MAY BE CITED AS: | Bezden v Castellano | |
MEDIUM NEUTRAL CITATION: | [2003] VSC 70 | |
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LEASE – whether option for renewal validly exercised – intention to exercise option – claim of unremedied breach - whether option exercised within prescribed time – discretion to grant Equitable relief.
Hillier v Goodfellow (1988) V Conv R 54-310
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P W Lithgow | Andrew Spilva Stewart & Co |
| For the Defendant | Mr W Stark | Lou Castellano |
HER HONOUR:
Introduction
The issue in this case, commenced by originating motion on 9 January 2003, is whether the plaintiff has exercised an option for renewal contained in a lease from the defendant to the plaintiff of certain commercial premises in Yarrawonga (“the premises”). The lease provides that the permitted use of the premises is retail sales, but it was common ground that the area of the premises is such that the Retail Tenancies Act 1986 does not apply to the lease. The plaintiff seeks a declaration that it has validly exercised the option, an injunction preventing the defendant from interfering with the plaintiff’s quiet enjoyment, and an injunction preventing the defendant from affixing “to let” signs to the premises until three months prior to the expiration of the further term of the lease. The submissions of counsel were directed only to the claim for a declaration.
The original lease commenced on 9 February 1993, and provided for a further term of five years at the option of the tenant. That option was exercised and the lease which is presently current (“the lease”) was entered into on 3 June 1998, for a term of five years, having commenced on 9 February 1998. The rental was $84,000 in the first year, increasing to $88,000 in the fifth year. Clause 12 of the lease reads, so far as relevant:
12.1The landlord must renew this lease for the further term or terms stated in item 18 if –
12.1.1there is no unremedied breach of this lease by the tenant of which the landlord has given the tenant written notice and
12.1.2. . . and
12.1.3the tenant has requested the renewal in writing not more than 6 months nor less than 3 months before the end of the term. The latest date for exercising the option is stated in item 19.
12.2The renewed lease –
- starts on the day after this lease ends.
- has a starting rent determined in accordance with clause 11.
.. .
The term stated in item 18 is three further terms each of five years. The date stated in item 19 is 8 November 2002.
Other relevant provisions of the lease are:
2.1The tenant must:
.. .
2.1.11pay on demand the landlord’s reasonable expenses of:
(a)the preparation, execution and stamping of this lease.
(b)change, transfer, surrender or ending of this lease, except at the end of the term or where the change occurs at the landlord’s request.
(c)the subletting of the premises.
(d)any breach of this lease by the tenant.
(e)the exercise or attempted exercise by the landlord of any right or remedy against the tenant.
4.1The tenant must not transfer this lease or sublet the premises without the landlord’s written consent.
.. .
4.5The tenant must pay the landlord’s reasonable expenses incurred in connection with an application for consent or the granting of consent and the completion of the documents, as well as the stamp duty on the documents.
14.1A notice given under this lease may be given:
-by post
-by facsimile
-by delivery
to the party’s:
-last known address
-registered address, or
if to the tenant, at the premises.
14.2Posted notices will be taken to have been received 72 hours after posting unless proved otherwise
.. .
Clause 11 deals with rent reviews. Clause 11.1.2 reads:
11.1.2 A party may initiate a review by giving the other party a written notice stating the market rent which it proposes for the review period. If the party receiving the notice does not object in writing to the proposed market rent within 14 days, it becomes the rent for the review period.
It would appear from clauses 11 and 12 and items 16 and 18 that in the case of a rent review initiated by the exercise of the right to request a renewal, the review period must be intended to be the twelve months following the commencement of the renewed lease. If the party receiving the notice serves an objection within 14 days and the parties then fail to agree, clause 11 provides a procedure involving appointment or nomination of a valuer who is to determine a current market rent which binds both parties.
Clause 16.2 of the lease provides that the parties “must attempt to resolve any dispute by the mediation procedure” and a formal procedure is set down, which may be initiated by either party to the lease. However, this clause expressly excludes “disputes about review of rent”.
The defendant submits that it was not bound to renew the lease for a further term under clause 12.1, because first, there was an “unremedied breach of the lease of which the landlord has given the tenant written notice” in terms of clause 12.1.1, and second, the plaintiff had not “requested the renewal in writing” by 8 November 2002 as required by clause 12.1.3.
The claim of an unremedied breach
During the currency of the lease the plaintiff sublet a part of the premises, with the consent of the defendant, to one Neville Hargreaves, trading as “Nev’s Cabinets”, for a term commencing on 1 September 2000. The earliest document before the Court relating to this matter is a letter dated 16 July 2001 from Mr Castellano, solicitor for the defendant, to the solicitors for the plaintiff, indicating that “upon payment of my bill of costs previously forwarded to you, I shall date [the sublease] and onforward same to your office for stamping”. It is to be assumed that this letter relates to Mr Castellano’s costs of his client’s consent to the sublease, pursuant to clauses 2.1.11 and 4.5 of the lease. In a second letter on 30 August 2001, Mr Castellano reminded the solicitors for the plaintiff that he had not received payment of “the landlord’s outstanding bill of costs”. On each of 15 August 2001, 19 September 2001, 18 October 2001, 12 February 2002, and 14 April 2002, he sent a standard pro forma letter to Mr Hargreaves, seeking payment of “outstanding bill of costs totalling $968”. A letter of 5 December 2002, also to Mr Hargreaves, on the same topic but in a different form, suggests that arrangements be made for payment by instalments.
On 9 November 2001 Mr Scantleton, a director of the plaintiff, wrote to Mr Castellano referring to “recent correspondence” relating to payment of “outstanding account $968”, stating “You have previously been advised by [the plaintiff’s solicitors] that your account is considered to be extremely excessive and will not be paid in its current form”, and offering the sum of $300 in full and final settlement of the account. That letter, in the form before the Court, is noted in an unidentified handwriting “Copy sent 15/2/02” and “Copy sent 17/4/02”. It can be taken as a claim that the amount of the costs sought to be paid is not reasonable. No reply has been received to that letter. The documents described in this and the preceding paragraph comprise the whole of the material before the Court on this issue.
The obligation imposed on the tenant by clauses 2.1.11 and 4.5 of the lease is an obligation to pay no more than the landlord’s “reasonable” expenses of the kind described in each of these provisions. There is clearly a long standing dispute between the parties as to the reasonableness of the amount claimed by the defendant under these provisions, although I note that there is no evidence before me to suggest that the defendant or its solicitor has ever made any claim that the amount is reasonable, either in response to the plaintiff’s letter of 9 November 2001 or otherwise. Neither party has initiated the mediation procedure in relation to that dispute. It would seem that since August 2001 the efforts of the defendant’s solicitor, such as they are, have been directed towards obtaining payment of the amount claimed from Mr Hargreaves rather than from the plaintiff. The discrepancy between the amount claimed by the defendant’s solicitor and the amount offered by the plaintiff might suggest that the amount claimed was not in fact such that it could be regarded as reasonable, but there is no evidence before me which would enable me to make any decision on that issue and I do not do so.
As the parties are in dispute as to whether the costs are “reasonable”, and I am not in a position to make any finding as to whether this is the case, I cannot find that there is an “unremedied breach of the lease by the tenant”, constituted by a failure to pay the reasonable costs of the defendant, which would negate the right of the plaintiff to request a renewal of the lease under clause 12.1. The first submission of the defendant accordingly fails.
The request for renewal
Clause 12.1.3 provides in effect that in order to be entitled to a renewed lease the plaintiff must have requested the renewal in writing between 8 August 2002 and 8 November 2002. On 22 August 2002 Mr Scantleton wrote to Ms O’Meara, the real estate agent appointed by the defendant, setting out “the rent we are prepared to pay upon renewal of the lease for a further 5 years effective from February 9 2003”. The proposed rent was $90,640 in the first year, rising to $100,048 in the fifth year. After referring, in justification for that proposal, to valuations and current rentals in Yarrawonga, as well as to expenditure on the premises, the letter states that the plaintiff is “faced with the requirement to upgrade our store under the Mitre 10 banner, with an estimated cost of $130000.00 in the next six to nine months”. The letter continues “We will not be committing to this investment until the matter of lease renewal is finalized”. Mr Scantleton’s evidence is that he then made numerous requests to the agent who said to him that the landlord did not have to decide until 8 November 2002. I should say that there is no material before me challenging any of Mr Scantleton’s evidence, and I have no reason not to accept his evidence.
Mr Scantleton had already written to the agent on 14 February 2002 RS2 about the need for repainting of the premises in the context of the Mitre 10 proposal and requesting that certain repairs be effected before the repainting was undertaken. He deposes that following that letter he spoke to the agent about a response to the letter and “the rental increase the landlord was considering”, but on every occasion she advised him that she had no instructions. The letter of 22 August 2002 was written at the suggestion of the agent.
After some discussion, the agent wrote to the plaintiff on 1 October 2002 seeking access to the premises in order to measure the area to assist in establishing a rental figure. The letter also sought copies of the valuations obtained by the plaintiff, and receipts for amounts expended on the premises by the plaintiff and its sub tenants. The letter begins:
Further to discussion and correspondence regarding establishing a rental figure on the renewal of the lease on the above property which you are currently renting . . .
On 2 November 2002 Mr Scantleton contacted the agent seeking the defendant’s response to that letter but she advised that she had had no response from the defendant.
At about 4 pm on Friday 8 November 2002 Mr Scantleton received a telephone call from the agent, who said that Mr Castellano had rung her asking whether the plaintiff wished to exercise the option under the lease. He told her that it did wish to do so, and asked her what rental the defendant was asking for the next five years. She said that she had not been advised, and asked him to confirm the discussion in writing. Mr Scantleton wrote to her on that day in the following terms, omitting formal parts:
Re: Castellano Nominees Pty Ltd Property situate at
59-63 Belmore Street Yarrawonga
Renewal of Lease due 8/2/2003
We refer to our telephone conversation of todays[1] date, and as requested confirm our advice that we will take up the option of a further 5 year term commencing February 9 2003.
This acceptance is subject to our landlord agreeing to the terms and conditions outlined in our letter dated August 22 2002.
We await your confirmation that our landlord has agreed to our offer.
The letter was hand delivered by Mr Scantleton to the receptionist at the agent’s office as she opened the office at approximately 8.55 a.m. on Monday 11 November 2002.
[1]
On that date Ms O’Meara apparently indicated by telephone that she was instructed that the defendant requested an increase in rental to $125,000. By letter of the same date Mr Scantleton rejected that request, pointing out that it involved an increase of 42.05% on the current rental. He requested the appointment of a registered valuer to determine the rent pursuant to the terms of the lease.
Mr Stark, for the defendant, submitted first that as the letter of 8 November 2002 exercising the option was expressed to be conditional on acceptance of the terms and conditions in the letter of 22 August 2002, the letter of 8 November constituted a counter offer rather than a valid acceptance of the offer contained in the lease. His second submission was that the letter of 8 November was not delivered to his client’s agent within the time prescribed by clause 12 of the lease. On either ground, he submitted, the option for renewal had not been validly exercised.
While the letter of 8 November 2002 is at first glance subject to a condition rendering it effective only as a counter offer, that is not in fact the case, as appears from reference to the effect of the provision for rent review contained in clause 11 of the lease. [2] In his letter of 22 August 2002 Mr Scantleton set out the rent which the plaintiff was prepared to pay over the renewed term. The defendant did not object in writing within fourteen days [3] to that proposed rent. That being so, the rent proposed in the letter of 22 August 2002 to be payable in the first year of the renewed term becomes, by virtue of clause 11.1.2 of the lease, the rent for that year, which is the review period provided for in the lease. Accordingly, the condition apparently imposed in the second sentence of the letter had, by 8 November, already been complied with, and that sentence was otiose. The letter thus constitutes an unconditional exercise of the plaintiff’s entitlement to renewal contained in clause 12 of the lease. The rent proposed in that letter to be paid for the subsequent years of the renewed term is a matter for subsequent determination year by year pursuant to the provisions of clause 11.
[2]See [4] above
[3]or indeed until 11 November 2002
The plaintiff seeks a declaration that the option was validly exercised. In Hillier v Goodfellow[4] Murphy J considered an appeal from orders and declarations made by a Master to the effect that an option to purchase land had expired without being exercised. There was evidence from correspondence indicating that the vendors knew at all material times that the grantee desired and intended to exercise his option. His Honour said: [5]
It is, in my opinion, open to the defendant to submit, in these circumstances, that if once it was established that the defendant had made it known that he was prepared to enter upon the contract, but that the plaintiffs denied its very existence, Equity might well grant relief against a minor time defalcation, not wilful or deliberate, but accidental and inconsequential. It might well appear to be only fair to grant relief, when the facts are finally found in the case. cf. Hunter v Earl of Hopetoun (1865) 13 LT 130 (HL).
. . .
The facts, in so far as they are contested, can only be found on trial. I am at this interlocutory stage persuaded that there are circumstances in which Equity would grant relief against the consequences at law of failing to exercise an option strictly within time. On balance I believe that the material before me does disclose a reasonably arguable defence and that it would accordingly be inappropriate to decide this matter summarily.
[4](1988) V Conv R 54-310
[5]at 63,970
I would refer to the following passage from Aronson & Dyer, Judicial Review of Administrative Action [6] and the cases there cited:
The declaratory jurisdiction is sufficiently discretionary to enable a judge to borrow equitable principles when exercising the discretion to grant or refuse the remedy. . . . the High Court seems to see the declaration either as an equitable remedy, or perhaps . . . a common law incident of the inherent jurisdiction to engage in judicial review.
See also the discussion in Zamir & Woolf, The Declaratory Judgment [7] , which concludes:
From a practical point of view, however, whether or not a declaratory judgment was originally an equitable remedy is no longer likely to be of any significance and a court’s approach as to how it should exercise its discretion will be guided by the equitable principles governing all discretionary remedies.
[6]2nd edition 2000 at 634-635
[7]2nd edition 1993 at 113-115
In the present case the plaintiff had made known its intention to exercise the option, in writing, to the defendant’s agent by the letter of 22 August 2002, written some two weeks after the commencement of the three month period within which the option was exercisable. In that letter it proposed a rent, which it justified on the basis of valuations and current market rents in Yarrawonga. In its terms that letter assumes, rather than requesting, that there is to be a renewal of the lease. However, the intention of the plaintiff that there shall be a renewal, that is, its intention to exercise the option, is clear from that letter.
The terms of the lease make the negotiation of the rent on a renewed lease an entirely separate matter from the exercise of the option [8] . The opening words of the agent’s letter of 1 October 2002 are concerned with that separate matter, and are clearly predicated upon the plaintiff’s entitlement to a renewal. There is no suggestion in any of the material before the Court that the defendant considered that any issue other than the amount of the rent on the renewed lease remained to be resolved; and in fact, at the expiration of 14 days after 22 August that issue had been resolved by virtue of the terms of clause 11 of the lease, although clearly both parties had overlooked this fact.
[8]see [17] above
On 8 November 2002, Mr Scantleton confirmed to the agent on the telephone what was already well known to her, that is, that the plaintiff intended to exercise the option, and wrote a letter to her to that effect. I have found that the letter of 8 November constituted, by its terms, an unconditional exercise of the option. Its only defect lay in the failure to deliver it on the day that it was written, which was the last date prescribed by the lease for the exercise of the option. In the absence of any other written expression of the intention of the plaintiff to exercise the option, and of the circumstances to which I refer below, that defect would have been fatal. But the letter simply expressed in more formal language the intention to exercise the option made clear by the letter of 22 August, and recognised by the agent in her letter of 1 October. I find that the defendant, through its agent, was well aware of the plaintiff’s intention to renew the lease at least from the receipt of the letter of 22 August, which could be taken to be a request for renewal, and which was written within the time prescribed in clause 12.1.3 of the lease.
Whether or not the letter of 22 August can be regarded as constituting a formal exercise of the option, I am satisfied that the circumstances of this case, considered as a whole, fall within the words of Murphy J [9] , as being “circumstances in which Equity would grant relief against the consequences at law of failing to exercise an option strictly within time”.
[9]see [18] above
Those circumstances include not only the correspondence to which I have referred, but the failure of the defendant to respond to communications from the plaintiff. There was no response to the plaintiff’s letter of 9 November 2001 (copies of which were apparently sent to the defendant’s solicitor in February and April 2002) putting in issue the reasonableness of the costs of the sublease. That matter was thus left unresolved, so that the defendant felt able to claim that there was an unremedied breach of the lease, disentitling the plaintiff from exercising the option. Nor was there any response, other than by the agent’s letter of 1 October 2002, to the letter of 22 August and to verbal enquiries made by the plaintiff, until after 8 November 2002. Both parties had clearly overlooked the effect of clause 11.1.2 of the lease, which, in the events which happened, fixed the rent for the first year of the renewed lease at the expiration of 14 days from the letter of 22 August. Given the apparent assumption, on both sides, that it was necessary to negotiate the rent, as part of the formal renewal procedure, the motivation for the defendant’s failure to respond to communications relating to the rent before the date prescribed by the lease for the exercise of the option can only be guessed at. It is not necessary for me to form any view on that subject, but the failure to respond cannot be overlooked in considering the exercise of my discretion to grant the declaration sought by the plaintiff.
It may be said that, in refraining from any response to the communications received by its agent from the plaintiff, the defendant had induced the plaintiff to assume that the option had been properly exercised, and that it was on that basis that the plaintiff did not execute any further formal exercise of the option until the query from the agent, initiated by the defendant, at 4 p.m. on 8 November. However, the evidence before me is not sufficient to allow me to make the findings necessary to establish that the defendant would be estopped from denying that the option had been properly exercised.
Conclusion
Nevertheless, I am satisfied, for the reasons stated above, that this is an appropriate case to grant the first declaration sought, namely that the plaintiff has validly exercised the option to renew the lease for a further term of five years commencing on 9 February 2003. There may be something to be said about the two claims for an injunction, also a discretionary equitable remedy. I await the submissions of counsel on that matter, as well as on the form of the order and as to costs.
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